These reminds me of a policy taken by the soc dems here in Sweden back in 1990. All salaries, prices, dividends and so on were frozen. It wasn't very popular or successful back then. But the wage restraint of the responsible labour unions during the crisis made certain sense then, during a national fiscal crisis, austerity, floating exchange rate and an export boom. Today it makes no sense at all... except in the periphery countries which do not have competitive wages compared to either the core or RoW! So I actually applaud periphery labour unions in showing wage restraint. The periphery countries had wage inflation much faster than productivity growth, which taken together with the fixed exchange rate of the euro, is what got us here in the first place.

The periphery countries had wage inflation much faster than productivity growth, which taken together with the fixed exchange rate of the euro, is what got us here in the first place.

Um, what got us here in the first place was that the periphery financed its consumption though lending from the core. There was a massive private debt and asset price bubble, not a gross increase in profits and wages in the periphery. And a lot of inflation, with all this debt and asset price money slushing around.

Of the three relevant labour unions in Sweden, the two smaller ones are politically independent while the big and strong one is essentially a part of the opposition Social democratic party. Or rather, the social democratic party is more like the political wing of the labour union, LO. So I fail to see why labour unions would feel any loyalty to the current centre-right government. If there is any example of the labour union feeling a greater loyalty to the (soc dem) party than its members, it's in their absurd resistance to the series of tax cuts which have been very profitable to their members. So what they should have done: support the tax cuts, support higher wages. What they did do: oppose tax cuts, oppose higher wages. Brilliant people, really.

I see it as NAIRU-policy working. Keep an army of unemployed and make sure to harass them sufficiently and the unions will act to keep their members from being umeployed rather then increased wages. Unions with a minimal unemployment among its members are still good at delivering pay increases. Of course, that is mainly unions for high-qualified personel and thus small unions, like for example the doctors union.